IF YOU DO NOT HAVE A DRIVE DEFINED, THE SMD GETS SAVED TO GOD KNOWS WHERE. ALSO MAKE SURE YOU USE / AND NOT \ OR ELSE IT WILL FAIL TO EXPORT.

Step 5:
Go to the directory where you saved the smd file, you should see 4 files. Two smds, a vta, and a qci. Create your qc (do not include $model or else you'll end up with a double mesh). Make sure you add "$include FILENAME.qci" into the qc.

Step 6:
Compile the qc. I'm not sure what versions of studiomdl work. For example, SFM's compiles it fine, but Portal 2's throws an error. I'd just use SFM's.

Step 7:
Open SFM and spawn your model.

Step 8:
You should see 2 sliders. One should be MODELNAME, the other MODELNAME_multi. THe MODELNAME slider turns the simulation on and off. MODELNAME_multi runs the simulation.
Go into the graph editor. At the frame you want your simulation to start set a keyframe. Set MODELNAME to max and MODELNAME_multi to minimum. Go however many frames your simulation was in, set a second keyframe, and slide MODELNAME_multi to the max.

Step 9:
Scrub through the frames and your simulation should be playing! Congrats!

Common issue(s):

I have 2 meshes inside SFM! What do I do?

Make sure you don't have a $body or a $model for the simulation inside of the QC. It's done for you in the qci.

One non-essential question: Is there a MEL command to do this via dmx so that I can include the $subd line in the qc and compile? (combining this with the subdivided cloth idea from the baked cloth physics thread)

One non-essential question: Is there a MEL command to do this via dmx so that I can include the $subd line in the qc and compile? (combining this with the subdivided cloth idea from the baked cloth physics thread)

Sadly DMX doesn't support this. Valve doesn't make use of it so my guess is they didn't spend the time coding it into DMX. You can get really high poly with this method though. Up to 65655 (I get a lot of crashes over 32K though)